Deep Discounter Ollie’s Says Consumer ‘Trade-Down Effect Is Coming Soon’

It is perhaps no surprise that Ollie’s Bargain Outlet, which was launched in 1982 amid the last bout of double-digit inflation, is preparing for a big 40th anniversary year.

With the price of everything on the rise, the quirky Pennsylvania-based retailer that boasts about the 431 frenetic “semi lovely stores” it operates in 29 states says it is well-positioned for the latest round of consumer belt-tightening.

“I don’t think we’ve seen the trade down effect hit us yet, but I’ve got a real strong feeling it’s coming pretty soon,” Ollie’s CEO John Swygert told analysts on the company’s Q4 earnings call Wednesday night (March 23). “Once people start putting gas in their tanks for the three, four or five weeks in a row and pay for groceries, and higher utility costs, I believe [the trade down] is coming. It’s something that everyone’s going to see here in very short order.”

Although 80% of its sales come from the 12.6 million repeat customers who belong to its “Ollie’s Army” loyalty program, consumers who have never shopped in a Bargain Warehouse before will have 45 new places to do so this year, as the company moves forward with a brisk new store opening plan en route to 1,050 locations.

“The value we provide is more critical than ever as we recognize that our customer has been impacted by the rapid rise in inflation,” Swygert said. “This type of environment plays into our strengths.”

The Close-Out Funnel

It’s not just consumers that are looking for bargains, Swygert said — the present economic climate of supply chain constraints and rising costs also has companies looking to offload their odd lots and loose ends at an unprecedented rate.

“We are excited about the close out opportunities we’re seeing in the market today due to package changes created by inflation, supply chain challenges, canceled orders, excess inventory, overruns and product innovation,” Swygert said. “We expect to see more deals come our way due to late arriving, canceled merchandise.”

Said another way, the company whose motto is “Good Stuff, Cheap” has strong access to both quantity and quality new inventory to pick from to stock its stores, including strong deal flow in health and beauty aids, housewares, hardware, holiday seasonal, bed and bath, automotive and pets.

But unlike larger discount chains and dollar stores, Swygert said, Ollie’s does not sell perishable food items or take EBT cards, and 75% of its sales are of discretionary items.

“While [inflation] leaves our customers with less discretionary income we expect value to become increasingly important to all consumers,” Swygert said. “I think we’re well positioned and we’re feeling that we’re in the right position right now and we will start to see that the deal flow is going to benefit us in the second half of the year.”

Calling All Cheapskates

As much as the economic backdrop bolstering the retailer’s prospects is troubling, Ollie’s itself is determined to keep shopping fun, whether through “thrill of the hunt” bargain discoveries, more stores or via the company’s first-ever store remodeling initiative, a modest 30 location revamp it characterizes as “test and learn.”

“We are a deep discount business and it’s important that we retain what we like to refer to as our ‘Semi Lovely Charm,’” COO Eric Van der Valk said, noting that upgrades average only about $125,000 per location. “The store environment is part of how we communicate our value proposition to the customer,” he added, noting permitting and construction delays were delaying its new store rollout this year.

At the same time, the company is moving ahead with a raft of special events to mark its 40th year in business.

“For the first time since our 25th anniversary we’re holding a contest to crown ‘America’s Biggest Cheapskate’ and asking our customers to tell us why they deserve this distinguished honor,” Swygert said, before pivoting to more bottom line focused insights.

“The long-term potential of our business remains firmly intact. We have a long runway to at least 1050 stores, we have a highly loyal customer base that generates almost 80% of our sales and our stores generate a ton of free cash flow,” he concluded.